Increased savings bank lending poses mounting risk

Increased savings bank lending poses mounting risk

Tougher lending policies in South Korea have pushed more households and businesses to resort to relatively expensive loans from savings banks, which could pose greater risks for the vulnerable borrowers amid the global unwinding of quantitative easing.

The Bank of Korea said Monday that the amount of loans issued by mutual savings banks in the January-July period of this year surged 10.6 percent on-year to 48.1 trillion won ($42.4 billion), the highest since December 2011 when they reached 50.2 trillion won.

Industry insiders are raising concerns that possible interest rate hikes from the U.S. and elsewhere could increase the debt burden on low-income households and mom and pop business owners, as many of them turned to secondary banks after being shunned from commercial banks. Loan rates charged by savings banks are roughly four times higher than those by commercial lenders.

Loans from savings banks rose to 65.8 trillion won in March 2010 but fell in 2012 in the wake of industry-wide failures and corruption scandals. The number dropped to as low as 27.6 trillion won in June 2014 but picked up again later in the year as more households started taking out loans on the back of a lower interest rate and a deregulated property market. The favorable market environment drove up the savings banks’ loans to 5.56 trillion won in 2015 and 7.88 trillion won last year.